How Much Is Pure-Play VoIP Contributing to LEC Line Losses?

This week, I've been investigating the phone companies' loss of over nine million traditional phone lines in 2007, trying to figure out where all of those lines went.  So far, we have seen that about half of them went to cable voice services, and a big chunk of the rest went to people replacing their home landline phone service with wireless phone service.  But there are a few other categories that accounted for at least some of the line losses.

One of these categories is pure-play VoIP services, such as Vonage, Skype, and all of their much smaller brethren.  Over the course of 2007, here is how Vonage and Skype grew their subscriber bases:

Consumer VoIP	EOY 1006	EOY 2007	"Lines" Gained
Vonage	2,224,111	2,580,227	356,116
Skype "Real Users"*	21,677,314	27,518,590	5,841,276
Total	23,901,425	30,098,817	6,197,392

*NOTE: the Skype "Real User" statistics is from Hudson Barton's Borderless Communicator blog, and is the best measure I have seen of the portion of Skype subscribers that really use the Skype service.

Of course, many of the users of these "over-the-top" VoIP services use the service to augment a wireline or wireless phone service, rather than using the VoIP service as their primary home phone line.   I believe that is especially the case with most Skype users.  Vonage users, on the other hand, often use their service to replace their primary home phone line. 

With that in mind, I think that pure play consumer VoIP companies caused only a small number of the 9 million line losses experienced by incumbents.  I'd assign maybe 6% of the total line thefts to the consumer VoIP bandits. 

There is one more potential cause for LEC line losses: business line losses to facilities-based competitive local exchange carriers.  Most CLECs have traditionally re-sold the incumbent's wireline plant in order to reach customers, so those lines aren't really "lost" since the incumbent LEC is still selling the line on the wholesale side.  However, some CLECs have connected their own fiber optic plants to larger office buildings in major metropolitan areas, and can sell services to the businesses that operate out of those buildings.  Examples of these kinds of CLECs include Level 3 Communications and Zayo Bandwidth.  I don't have good data on how much of the LEC line losses could be attributed to competitive bandwidth providers, but I suspect that this percentage is also low, less than 10%. 

Monday, I'll look at all of the suspected causes of line losses in one summary post, as was suggested by one Telecosm reader.

Comments

[Hudson Barton]

Ike,
Your blog is always a fascinating read, and I am grateful for your link to Borderless (http://glimfeather.com/borderless/. Let me make some comments on the way that you are using my "Real Users" statistic:

As you report, there were 5.9 million "real" skype users added during 2007. Let's try to break it down by territory.

Europe/Africa/Middle East: 1,973,481
Americas (North and South): 2,356,786
Asia & Pacific: 1,511,013

The above numbers are actual measurements and I have a high degree of confidence in their accuracy. However, breaking the numbers down further is basically guesswork. My guess is probably as good as anyone's. In your article you seem to be looking for statistics related to the USA. The relevant Skype number, for comparison with Vonage and the CableCos, would be about 75% of the above America's number, or about 1.77 million.

From there, we can continue guessing as to how many of those 1.77 million new Skype users dropped their other phone service in 2007. My guess is that it was zero. However, that is beginning to change with the recent onset of high quality Skype WIFI phones that make it a viable choice for some people. Note also that for regulatory reasons, Skype has made no effort to become a phone replacement... in fact it has actually discouraged people from attempting it.

If you are looking for causes of the 9 million "line" decline among the incumbents, look no further than cell phones, broadband, and the demise of the fax machine. Households these days have very little reason to have even one landline, let alone the two or three or more that a household might have needed a few years ago (for voice, fax, modem, and the children who now all have cellphones).

In my view, Skype does present a real threat to the incumbents, but it is not evident in the statistics for "lines". You can see it more readily in the statistics for "long distance minutes", especially international minutes. The incumbents are trying to prevent further erosion with bundled unlimited domestic long distance. In my view, these pricing measures will work only for a short while. Ultimately, the superior economics and superior features of pure P2P VOIP (such as Skype) will totally overwhelm them. It is just a matter of time before they collapse.